Despite the housing recovery continuing to gain momentum, millions of homeowners are still underwater on their mortgages or owe more money than their homes are worth, according to a report released today by the Joint Center for Housing Studies of Harvard University.

And while housing continues to mend, homeownership rates continue to slide.

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"Even as historically low interest rates have helped make the monthly cost of owning a home more favorable than any time in the past 40 years, the national homeownership rate fell for the eighth straight year in 2012," said Eric Belsky, managing director of the Joint Center for Housing Studies.

"Homeownership rate has declined from 69% to 65%. We expect it will level out between 64% and 65% over the next few years," said Mike Fratantoni, vice president of research and economics at the Mortgage Bankers Association.

The drop was especially significant for 25–54 year olds, whose homeownership rates were at their lowest point since recordkeeping began in 1976.

"Households in this age range, particularly at the younger end of this range, were most likely to have bought near the height of the boom, and hence were hurt most by the subsequent bust in the housing market," said Fratantoni.

So why the drop in homeownership rates? According to Chris Herbert, director of research at the Joint Center for Housing Studies, tight credit is limiting the ability of potential homebuyers to take advantage of today’s affordable conditions.

Herbert believes the issue at hand is whether, and at what cost, mortgage financing will be available to borrowers across a broad spectrum of incomes, wealth, and credit histories moving forward.

"Prospective borrowers should expect a rigorous review of their documentation, and be fully prepared to verify their income, assets, and employment," said Fratantoni. "They should also know their current credit score, and be sure that they are responsibly managing their existing debt."

While many welcome the rise in home values, it is leaving many Americans shelling out half or more of their income on housing.

The latest numbers have 20.6 million households shouldering such severe burdens, including nearly seven out of 10 households with annual incomes of less than $15,000 (roughly equivalent to year-round employment at the minimum wage). However, the report notes, even as the need has never been greater, federal budget sequestration will pare down the number of households receiving rental housing assistance.

"With rising home prices helping to revive household balance sheets and expanding residential construction adding to job growth, the housing sector is finally providing a much needed boost to the economy," says Belsky.

He added that long-term vacancies are at elevated levels in a number of places, millions of owners are still struggling to make their mortgage payments, and credit conditions for homebuyers remain extremely tight.

Belsky added, "It will take time for these problems to subside. Given the profoundly positive impact that decent and affordable housing can have on the lives of individuals, families, and entire communities, efforts to address these urgent concerns as well as longstanding housing affordability challenges should be among the nation’s highest priorities."

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